"You Can Wake Up With an Idea for a Fund and Deploy it in Minutes:" Melon's Mona El Isa
Mona El Isa discusses how Ethereum is slashing the time and cost of asset management and reveals what's coming up on Melon's v2.
Hello Defiers! This weeks podcast episode is with Mona El Isa, the co-founder of Melon, a decentralized asset management protocol. Mona tells the story of how she started her career at Goldman Sachs trading equities, derivatives, and all kinds of financial instruments, for a decade. She then went to work with one of Goldman’s hedge fund clients, where she managed a long-short portfolio. With all that experience and $20 million dollars from a seed investor, she ventured on her own to launch a hedge fund —but failed. The time, costs and administrative hassle were too much to handle even with an investment of millions, which in that world, is actually pretty tiny.
She took a break and then at a beach in Brazil she stumbled across an article on Bitcoin and that changed everything. Finally, there was something in finance that made sense. She dove into blockain technology and crypto. She started going to bitcoin meetups, where she didn’t exactly encounter the most welcoming environment but persisted. She came to the conclusion that the next step for her would be to build a blockchain-based protocol so that nobody would have to experience what she did when trying to set up an investment fund. A platform that made the process so much cheaper, faster and easier, that anybody could become a hedge fund manager. That’s how Melon Protocol came about.
In the interview, Mona reveals plans for Melon’s version two, talks about a vision where all assets become tokenized and traded on distributed networks, and even announces the project’s new name.
🎙Listen to the interview in this week’s podcast episode here:
You’re a paid subscriber, which means you get the full transcript below. Subscribers also get exclusive access to The Defiant’s Discord chat for the community, here’s a new link to join.
🙌 Together with Zerion, a simple interface to access and use decentralized finance, and1inch.exchange v2, which aims to provide the best rates by discovering the most efficient swapping routes across all leading DEXes.
Mona El Isa: My background is in traditional finance. I spent most of my career there. I started straight out of university on the Goldman Sachs trading floor in London. I was trading cash equities initially, and market making, and pretty soon afterward, they also gave me a proprietary book to trade for them. I was basically using the firm's capital to invest across equities initially, and then derivatives, futures, commodities, CDS, and all that stuff. It was a fun, very high adrenaline job. I spent nearly a decade there and then move to work with one of our hedge fund clients, where I was a long short portfolio manager for four years.
My last career move before forming Melon was to try and launch my own hedge fund, and this was a complete disaster. I was completely going into this opportunity with starry eyes and dollar signs and thinking finally, I can launch my own business. I had a seed investor who's willing to give me $20 million to get started, which was really small compared to what I had been managing previously in my two previous jobs. But I was thinking, this is my baby, and I can grow it and I can really make something out of it. It turned out to be a complete disaster.
“My last career move before forming Melon was to try and launch my own hedge fund, and this was a complete disaster (…) I was completely unprepared for the high barriers to entry and asset management for a starting emerging manager.”
I was completely unprepared for the high barriers to entry and asset management for a starting emerging manager. I was completely unprepared for the high cost, not just money, but also the time required to set up a fund, research, all the different service providers, etc. I was also very spoiled: when we were in the larger institutions, we just had people doing stuff for us all the time, which you just take for granted. I closed the fund after a year, and was pretty depressed and upset about how bad it had gone. The next thing was basically Melon, how to make it better.
Camila Russo: Why specifically, crypto? After shutting down this hedge fund in traditional finance, what made you look into crypto for your next project?
Bitcoin in Brazil
ME: That's a great question. I think one of the questions I had a voice in my head during that very tough year, and it just kept saying to me, why is everything so complicated in the 21st century when we have so much technology available to us? How is it that we're still booking trades on paper, we're still reporting using Excel sheets? We don't have a standard for each different asset class. How is it? I just couldn't understand.
“How is it that we're still booking trades on paper, we're still reporting using Excel sheets?”
We were talking about driverless cars in some industries. We're talking about all these insane technologies in terms of artificial intelligence and, and we can't get finance right? There's so much money in finance, how have they not figured this out? I never really explored that question because I never really had much time to do that. But after sort of closing the fund, I decided to take some time off and I was lying on a beach in Brazil, and I was reading some articles and I stumbled across an article on Bitcoin. All of a sudden, I was like, oh, finally, something in finance that makes sense; this technology is advanced, it’s immediate, it’s efficient.
Then I got obsessed and that led me to Ethereum. Then I started hearing about ICOs and tokens and I started to imagine how all assets could eventually be tokenized. It wasn't like I was looking for crypto, for me it was, I stumbled across it by accident, I suddenly understood what this could mean. I was like, oh, so if all assets in the world could eventually be tokenized, which clearly they will, because you need some efficiency in finance, then we can basically automate all the stuff that I struggled with in the last year using smart contracts. I guess that realization, once I made it, I was like, time off over, I need to make this happen. What do I do to make this happen?
CR: You mentioned ICOs, was it around 2017 era?
ME: This was at the very beginning of 2016. I think the only project that ICO-ed around that time was been a handful of ICOs or token sales. More and more, obviously, started to accelerate, more and more it started to happen. But for me, it was really just the realization that this could happen and it already had happened with Bitcoin and Ether. Why wouldn't it just happen with everything else?
CR: Still pretty early in the token boom phase, that's really interesting that you decided to make the plunge and bet on tokenized assets. What were the next steps going forward that led you into founding Melon?
Bitcoin Meetup in Zurich
ME: Once I realized I was really hooked on this space, and what it meant for finance, I couldn't take any more time off because my mind was just like always thinking about crypto and blockchain technology. I thought, how can I basically immerse myself into this world being a non-technology person and all of this stuff being so technologically advanced?
I basically decided to get on a plane back to Zurich, which is where I had my apartment. I had read that the Ethereum Foundation was in Zug, which was 20 minutes from my apartment. I thought, I'm just going to immerse myself into the crypto scene and I didn't know where to start. On meetup.com, I found a Bitcoin meetup, and I showed up, and they were, I think, maybe 12 guys there. All of them were software developers, and they just looked at me and they said to me, “Sorry, I think you're in the wrong place. This is the Bitcoin meetup.” I was like, no, this is where I want to be. They all rolled their eyes and were like, who is this girl and what does she want? I was just persistent. I was like, I'm sitting here, I'm going to listen to everything you guys are saying, I'm going to take notes, and I'm going to go home and I'm going to research this stuff afterward, and try to make sense out of it.
“Sorry, I think you're in the wrong place. This is the Bitcoin meetup.”
I think it was my third Bitcoin meetup when one of the guys finally decided that he was going to speak to me. He turned around and was like, okay, so who are you? What are you doing here? Everyone wants to know, and we’re surprised you keep turning up. I said, well, this is my story, I don't know anything about tech, but I'm super interested in what this could mean. I am just going to sit here and listen, I don't want to bother anyone, and I'm just trying to learn. But I understand that I'm too dumb for you guys, so just indulge me and let's try and make this work. He's like, wow, you're from finance! We didn't know that. He was like, we've never had anyone from finance interested in crypto. This is like the first time we managed to attract someone from the financial industry. So then they were like, oh, wow, this is big for Bitcoin, you know, people in the finance industry are starting to care.
All of a sudden, they were like, let us help you make some introductions. You can mentor some people in Zurich, who are working on some cool startups, and they'll teach you about the tech and maybe you can teach them a little bit about business and companies and finance because a lot of them are trying to set up their companies but don't know anything about that topic.
From there, I started mentoring a bunch of people and one of them ended up becoming my co-founder Reto Trinkler, we cofounded Melonport together at the end of summer 2016, and that was basically the start. We did our token sale in February 2017. It was a small token sale, it was before the bubble. But I think the bubble basically started right after that. When we did our token sale, Ethereum was at $11 when we did it.
CR: Can you tell me more about Melon itself? I understand it is an asset management protocol, but what’s the idea behind it? How does it work and why does it need a token?
ME: Great question. By the way, we should just maybe, caveat that Melon is rebranding soon.
CR: Do you know what the new name will be?
ME: Yes, I do know and a lot of people have been trying to pull it out for me, but we have not publicly announced it yet.
CR: Maybe this is the time.
ME: Okay, let's do it.
CR: What's the new Melon name?
ME: Maybe I'll try to announce the name and then maybe try to refer to it by that name for the rest of the podcast so I can get myself used to it. How does that sound?
ME: We've decided to rebrand the protocol from Melon, I don't know if you know the backstory to why we're rebranding? We had so many warnings from BNY Melon, one of the largest US banks, they happen to serve the asset management industry. So they are threatening individual members of our DAO with different lawsuits. That the thing is, even though it's spelled differently, and even though it is different in many ways, I think they are just too big to fight in terms of energy and money. So we've decided to rebrand and the new name is Enzyme protocol.
“So we've decided to rebrand and the new name is Enzyme protocol. We were playing on the idea of accelerating a financial revolution, accelerating the asset management industry.”
We were playing on the idea of accelerating a financial revolution, accelerating the asset management industry, which is long overdue for a an upgrade in terms of technology. So let's refer to it as Enzyme.
CR: Congrats on the rebrand. I think it's great.
ME: We're really excited about it. Enzyme is a protocol that basically is designed to empower managers and their investors. What do I mean by that? With Enzyme, an emerging manager can basically come up and set up an investment product or a fund in a matter of moments by using our smart contract suite and interface.
You can customize whether you want a management fee or performance fee, which DeFi protocols you want to be able to interact with, which investors you want to be able to attract or do you want to keep it open to everyone, what do you want to be able to lend, add liquidity to pools etc. as part of your strategy? We can handle automated strategies. We can handle discretionary strategies. We can handle all sorts of different types of asset management. We’re specifically focused on the fund space right now, but there's no reason why it should be restricted to that.
The idea is to remove the complexity. Removing the complexity of things like calculating your P&L, your NAV, removing the complexity of figuring out management fees, performance fees, removing the complexity of having a fund administrator and a custodian, but actually just automating that whole middle layer, and making it so that fund managers can just set up a fund and just start trading. So this is empowering to them. It's low cost. It's low time. We're hoping that by reducing the barrier to entry, we can basically tap into a new talent pool that has never been seen before in terms of talented managers.
“The idea is to remove the complexity.”
On the investor side, you get transparency. Something that really lacks in traditional finance is transparency. You invest in something, you never hear back from them, unless you're really one of the largest investors. You have no idea what's happening on a day to day basis. You have no idea what the portfolio allocation is. You have no way of seeing where the fees are, how the fees are being calculated, who's taking a cut where. Basically, investors now have access to seeing all the fund managers or all the investment strategies on-chain with an auditable verifiable track record on the blockchain, taking their pick investing and getting full transparency and access regardless of their size and regardless where they are in the world.
“Something that really lacks in traditional finance is transparency.”
CR: Amazing vision. Where does token play a part in all this?
The Melon Token
ME: The Melon token is a token, basically a utility token which is designed to power the asset management protocol. When you're using the protocol, you're basically paying asset management gas in Melon tokens. The idea there is that we directly link usage to the value of the token. The more usage we have on the network, the more the token value should in theory be worth. The reason that's important is because the people earning the token are the developers on the network. Anyone contributing to the code or to the ecosystem of Melon is eligible to receive a Melon grant from the DAO, and that grant is going to be worth more if they build cool stuff, because more people will be using the protocol, and it's going to be worth less if they don't. It aligns incentives nicely between the token holders and the users.
“The idea there is that we directly link usage to the value of the token. The more usage we have on the network, the more the token value should in theory be worth.”
The third part of that governance is the users themselves don't really have protection, in the sense that their stakes, because the users don't necessarily own tokens. They don't necessarily have a representation. The idea behind the DAO is that the DAO should look after the best interest of the users, and we do that by making sure that it's composed of technically skilled people like former or existing auditors, very technically skilled people who are familiar with the protocol, or users on the protocol who have been nominated by other users.
CR: User's pay for their asset management fees with the Melon token, and those fees then go to developers of the protocol?
ME: They don't go directly to developers. The fees that are accumulated as a result of usage of the network are actually burnt. The protocol inflates new tokens every year, which can be spent on grants, and if they are not spent on grants, they are burnt.
CR: Are the developers of the Melon protocol under the Avantgarde umbrella? Is that how that’s structured?
ME: Avantgarde is one team that is the lead development team at the moment of the protocol, but there are other teams building cool things on top of Melon and have been earning Melon. One of the teams is actually anonymous for the moment, but I think they might come out of the shadows later this year or early next year. But in general, the ideas, it's not limited to the three or four teams that have been building on Melon so far, but it's actually open for anyone to come and make an application.
CR: When you say developers building on Melon, do you mean people creating their own funds? Or are these other types of applications that are being built?
ME: That's a great point. No, so not people building funds; building funds, we would consider that being a user. But people who say, well, I want to be able to interact, for example, from a Melon fund, I want to be able to interact with Y tokens, but you guys don't have that adapter built, so I'll write that adapter, and in return, I want X amount of Melon tokens for my work. You list out the work you want to do, you state your qualifications and why you're able to do that work. You submit a Melon funding proposal on GitHub, the proposal gets considered by the DAO and if they think you're qualified, and that the thing you want to do for the protocol is beneficial for the whole protocol and in line with the priorities, they will award you that that kind of grant.
CR: What have been the tradeoffs that you found in using a native token to your project, versus say, just potentially having done everything with ETH? Because you've created this, an internal economy within Melon, thanks to having this token. But I guess it still adds a little bit of friction to users and potentially builder. So what are some of the lessons you've learned from that?
ME: At this stage, I wouldn't do it differently, because I think that, whilst the idea of doing it in ETH sounds simpler, it doesn't really give protocols the tools to adapt their economics the way they should have that freedom to do what's best for the protocol. I think if you're working just with ETH, there aren't many levers you can pull if you need to adjust certain things. For example, if usage is very low in the first year or two, a lot of protocols in DeFi experienced previous to this recent boom, you might not accumulate enough fees in ETH at the time when it's most crucial to have fees to paying developers because you're so early in that cycle.
“Whilst the idea of doing it in ETH, it sounds simpler, it doesn't really give protocols the tools to adapt their economics the way they should have that freedom to do what's best for the protocol.”
The freedom it gives is you can somehow create your own token which is directly linked to your protocol success, not to Ethereum success, but to your protocol success. Developers are incentivized or should be incentivized, because they do a good job, then that potentially has a lot of value, and at the same time the DAO can burn tokens, they can allocate more tokens, they can’t issue more than the maximum amount per year, but they have levers, you know, they can adjust the pricing, etc. A lot of those things are much harder to do if you were using a stablecoin or Ethereum.
CR: For automating this back office of asset management, you're using Ethereum smart contracts to do this?
ME: Everything we've done so far has been using Ethereum.
CR: I'd love to hear more about the different processes that take middlemen and lots of time to do in traditional asset management and what part of these processes have you been able to automate?
Automating Asset Management
ME: For a lot of the processes in traditional asset management you need a lot of financial intermediaries, and that's not just because you need them, but it's also imposed by law. In most countries that you need to have a custodian to keep your assets. The idea behind that is, if you're a manager, and you're taking investments in from third parties, the regulators generally want to make sure that if you say you're a US equity fund, that you're actually investing that money in US equities, and not buying yachts and Lamborghinis on the side with investor’s money and pretending to invest in US equities. So the idea of holding it in a custodian ensures that the investor has some degree of trust, because the custodian is instructed ahead of time what the manager can and can't do.
There's also another piece to the puzzle, which is a fund administrator, and the fund administrator’s job is to check your accounting every day. So it still falls on the manager to do his or her accounting. But the fund administrator serves as an independent auditor, who daily, weekly or monthly, depending on the liquidity of your fund will check that what you are saying is the net asset value or the share price of your fund is actually the share price of the fund and that you aren't doing anything funny to manipulate the numbers or lying about some positions you do or don't have.
They also play a role in making sure that there are no mistakes, because when you're doing a lot of trades and booking them in the traditional old fashioned way, it's very, very, very vulnerable to mistakes. Very often in finance, people do trades all day long, they accidentally book a buy as a sell, or sell as a buy, or they put the wrong price or they put a decimal in the wrong place, and these are human errors that don't get caught. But the fund administrator’s job is to double check all the trades you do, make sure that what the buyer submitted is the same as what the seller submitted, so they match, and if they don't, their job is to make a call or an email to the counterparties the next day and say, look, one of you guys is reporting the wrong price or a wrong direction, because these two trades are not matching.
This is how a lot of errors are uncovered. Some of these errors can be very costly to the fund and its investors. We automate all of that process by using decentralized finance and Melon contracts. Obviously you can't have that problem with a DEX, because if you do the trade unless it's a typo, there is no matching error. But Melon also makes sure that your share price is calculated on an ongoing basis. It's published on the blockchain daily, so no one can dispute that and it takes care of all the operational administrative functions.
“This is how a lot of errors are uncovered. Some of these errors can be very costly to the fund and its investors. We automate all of that process by using decentralized finance and Melon contracts.”
It also takes care of the risk management, which is a job that either the fund administrator or internal staff, internal operational staff will have to do. The risk manager is basically usually making sure that your manager is complying with what he or she told the investors he would do. If you say, I'm only going to invest in US equities, and then if I say to my investors, I'm going to invest only in US equities, and then tomorrow, I go and buy Bolivian real estate, my risk managers job is to come and tap me on the shoulder and say, no, you need to liquidate that immediately, it's not part of our mandate. That's breaking the promise to our investors.
There are a few examples. But all of this stuff is just very manual, very human dependent, and requires a lot of bodies, and a lot of people and as a result, is also very expensive and time-consuming. The idea is that Melon really displaces all of these functions one by one and much more, enabling the manager to just focus on what they really should be focusing on. Investing, that’s usually their passion, it's usually what they feel empowered to do. They should be empowered to do that, and we basically try to give them as much tools as possible to empower them to just focus on what they love doing.
“This stuff is just very manual, very human dependent, and requires a lot of bodies, and a lot of people and as a result, is also very expensive and time-consuming. The idea is that Melon really displaces all of these functions one by one.”
CR: When you compare setting up a fund in the traditional world versus setting up a fund through your protocol, what are some of the cost reductions and time savings that you've seen? Comparing side by side, how much time and money does each cost?
Time and Cost
ME: That's a great question. I think, in traditional finance, you would probably struggle to launch a fund with less than $100,000, and your ongoing costs would probably be at least $50,000 to $75,000 per year, regardless of your size. If you're a small fund, really your costs will eat you up. By small, I mean, less than $20-30 million.
“In traditional finance, you would probably struggle to launch a fund with less than $100,000, and your ongoing costs would probably be at least $50,000 to $75,000 per year, regardless of your size (…) With Melon, it's costing you right now around 100 bucks.”
With Melon, it's costing you right now around 100 bucks, and I'm talking, gas prices have been all over the place, I think at the low, it was maybe $40, at the high it was, I don't know, a couple of thousand dollars. But I think we mentioned this before, but we're about to launch V2, and V2 comes with huge gas enhancements to the point where setting up a fund should hopefully be in the double digits, again, not triple digits. So it's a huge, huge cost saving on the setup.
Obviously, you have gas costs involved when you trade etc. But I would say that it doesn't come close to $75,000 a year. You’re probably looking at a couple of thousand dollars a year and probably less when we eventually all move to Layer 2 or some other gas optimization. But I think, really, you're talking much, much, much, much lower, almost insignificant cost compared to what the traditional industry faces today.
CR: What about the time it takes to setup?
ME: Oh, that's a great question. I realized I slipped and I reverted to calling it Melon again, so I can't believe, I forgot. On version one, in time, it probably takes around 15 to 20 minutes to set up a fund. That's because on version one of many Enzyme you needed to go through nine transactions to customize and sign. That was both making it expensive, but also very time-consuming.
In v2, which we're launching very soon, and we're very excited about we're taking down the number of transactions to deploy upon down to one transaction. So basically, the time to deploy your funds should be down to around a minute, so really a huge improvement and also the cost should be lower depending on how much complexity is in your fund.
CR: We're looking at a few minutes, I mean, less than an hour to set up a fund using Ethereum smart contracts and crypto and automation, and maybe a couple thousand dollars a year when you consider gas cost and trading and cost to set up the actual fund versus $75,000 in traditional finance, how long would you say it takes to set up there?
ME: I would say at least three months, but probably more.
CR: You saw that firsthand, trying to set up own fund?
ME: I hope no one else has to see it.
CR: To me, it's just another example of how DeFi can really start to just lower the barriers of entry to people.
ME: I like saying it empowers people, because I think anyone can do anything so quickly and so easily. We had some UX issues to face in the last year, but it's just things even on the UX side are getting so much easier, and so much faster day by day.
CR: I'd love to hear more about v2. You mentioned gas costs improvements, the reduction in number of transactions it takes to set up a fund. How will Enzyme look now compared to Melon? Because I remember trying to actually use Melon a few months ago, to be honest, I love your vision and everything, but it was a little bit tough to do. I had a bunch of issues setting it up and I think there was a program that I had to download to open it on my desktop, I don't remember. But I remember it was a little bit tough to set up. I'd love to hear what v2 will look like.
An Entirely New Protocol
ME: I would say v2 is almost an almost an entirely new protocol. It's rebuilt from the ground up. It's architected in a very different way. It's architected such that it's much more modular, which is actually what it was always intended to be, but we didn't quite get it right the first time. But it's basically, you can think about it as the guys on the team like to say, a bit like layers of an onion, you have this very core part that almost never changes, then you have a state that changes in some circumstances, and then you have a state which is very modular and very easy to plug in and plug out and really playing into the whole composability idea.
“I would say v2 is almost an almost an entirely new protocol.”
The idea is that v2 is much more cleanly architected. Because of the new format that adapter functionality is much more flexible and able to handle more than just DEXs, which is what V1 handled. We're going to be able to integrate lending as of day one. So we'll be integrated with protocols like Compound natively; at a smart contract level, will be integrated with pools, so funds will be able to deposit capital into Uniswap pool type strategies, and earn commissions and whatever trading P&L comes with that.
We're also able to hook up with things like derivatives protocols, synthetics protocols, etc. because of more flexible architecture. As a result, we'll also be able to address a very major concern that users had from V1, which is at the asset universe was not big enough. If there's one message that I want to bring across on this podcast, it is that V2 asset universe will be substantially bigger than what it is in V1, I think we have 14 assets in V1, and I'm not going to hold myself to any number for V2, but we will definitely have a lot more assets that users can play with.
“V2 asset universe will be substantially bigger than what it is in V1”
Another feature is that in V1, we were only able to handle what we refer to as primitive, so like very basic plain vanilla tokens, and with V2, we have got a logic now which enables us to handle derivatives, so anything that derives its product from an underlying asset as long as we have the price feed for that underlying asset. That's going to be really cool.
We talked about the gas costs being reduced. Maybe one of the biggest features is also that we have seen during usage is upgradability. Previously, when you had a fund on Melon, if we released new features or a new release, you would have to shut down the funds, get your investors to redeem and then relaunch the fund and get them to reinvest into the new version just to access the new features. But we're very happy to say that with V2, we have included upgradability patterns for funds, so every time we now release a new feature, users will be able to access that feature from their fund through the upgradability patterns that we've incorporated.
There's more, but I think as a keeping it to highlights, I would say those are probably some of the features I'm most excited about.
CR: From what I gather, the biggest shift here is that on V1, people had access to a relatively reduced set of tokens that they could create funds with. But now you're including all different DeFi primitives, if you want to call it not just tokens, but also pools, synthetics, derivatives lending. Sounds like a step forward.
BE: Exactly, that's a big takeaway. The three big takeaways, I think, are lower gas and speed, upgradability being incorporated, and much, much higher asset universe, but not just in primitives, also derivatives and therefore, the ability to natively integrated with more than just a DEX, but also accessing all the other cool stuff that's happening in DeFi.
“The three big takeaways, I think, are lower gas and speed, upgradability being incorporated, and much, much higher asset universe.”
CR: I wanted to ask you about your major difference with the other DeFi asset management protocol, Balancer, but I think it's pretty clear now. It seems you're working under very different premises. Balancer is creating these tokens, something that looks like index funds on these token pools. But you are doing something that's a little bit, including flexibility to add any DeFi strategy and primitive to the fund, right?
Enzyme v. Balancer
ME: Exactly. I'm a huge fan of Balancer and the way that you can set up a portfolio which is fixed weight and automatically rebalance without the creator having to worry about putting on the trades or even pay for the trades. I think that's really cool for the index type products up to eight assets.
I think Melon goes for a different market. It's more just the general broader asset management industry. The idea is that it should be a lot more customizable, flexible. It’s like if you woke up tomorrow, and you're like, I have a great idea for an investment product, and I'm going to put my own money in, but why not open this up to friends and family, etc? You can just in a few clicks customize a vehicle deploy to the blockchain in five minutes. Basically, you're there, you're done and your fund has its own unique token, people can buy into it. You can manage it, completely transparently with a lot of the same securities, and the smart contracts help establish trust between your investors and you because everything is like so automated and transparent.
CR: Do the funds on an Enzyme automatically rebalance, like on Balancer or does a portfolio manager have to do that manually?
ME: They don't automatically rebalance. There is a possibility of you writing a bot that automatically rebalances, and that could be either off chain or on chain. That's definitely a possibility, but it's not an area that we have focused on so far.
CR: Then the other thing I was curious about is DeFi, it's becoming increasingly common to just tokenize everything, make a derivative of a pool and whatever it is you're tokenizing. So will funds on Enzyme also tokenized?
ME: They are already. So when you set up a fund, it has its own token. That's already the case. It's always been the case. The tokens are not transferable, but they probably will become transferable at some point in the near future. I wouldn't say like it's not planned for V2, but it's probably planned quite soon afterwards that we will incorporate transferability.
CR: That would definitely increase the composability of Melon with DeFi. That would be really cool. I wanted to touch on the adoption so far. How many fund managers are you seeing, users’ assets managed?
ME: We have, I think it's just over 400 managers since inception, which you can track on our subgraph. I think, it's maybe 1,200 investments have been made into the funds, and we have around $2 million under management. I would say that we have shied away from pushing people into V1 actively, knowing that V2 is coming. I think a lot of people have been on the sidelines waiting, because upgradability at least was a really big deal killer for some people, like they couldn't imagine building a product, trying to grow it, and then telling everyone I'm shutting it down and relaunching on V2.
The general feeling was, it's a UX nightmare. So we'll see. I think, we've definitely done our homework in terms of what users wanted to see. I don't think that we've done a great job attracting users in the first couple of years, or the first year and a half of Enzyme. I think a lot of that has been down to the UX and UI problems, and I think that, hopefully, we have got that into a much, much better place for V2. I'm personally really, really excited to see how people respond to it.
“I don't think that we've done a great job attracting users in the first couple of years, or the first year and a half of Enzyme. I think a lot of that has been down to the UX and UI problems, and I think that, hopefully, we have got that into a much, much better place for V2.”
CR: I'm excited to see it as well. To wrap up, I'm curious about your big picture view of Enzyme in the future. Ideally, where do you want to see it in 10 years, taking over Wall Street, in every Bloomberg terminal, what's your big picture?
Everything on Ethereum
ME: I do see it as the infrastructure that should underpin the whole asset management industry one day, and that doesn't just mean native Web 3.0 DeFi, but I do believe that traditional finance will move on-chain eventually in terms of everything we know of in the S&P 500 and bond market, etc, having some tokenized share class. So, yes, when that happens on Ethereum, there is an infrastructure to manage that stuff in a professional way, which people are used to.
Beyond that, I think what's happening in Web 3.0 in the native applications is super exciting. Products always iterate and products always evolve, and so it never stops being exciting. But some of the stuff we're seeing DeFi come up with right now in terms of, Uniswap pioneering the idea of a pool as a product being able to own a share in a market making pool, it's insane that this has become a productized thing, and no one would have ever imagined that a year or two years ago.
“I do see it [Enzyme] as the infrastructure that should underpin the whole asset management industry one day and that doesn't just mean native Web 3.0 DeFi, but I do believe that traditional finance will move on-chain eventually.”
I think we're just going to see a ton more of that stuff. What we're seeing now with NFT's what we're seeing with staking what we're seeing with. I'm super excited, for example, about wrapped liquid staked tokens. From a product side, from an asset class side, I think everything will eventually find its way to Ethereum. But more importantly, I think asset management, we've tend to focus a bit more on the fund side of things. But I think, asset management it's more than just funds. It's venture. It's insurance. It's indices, ETFs, ETPs. I think that the infrastructure Melon has built is pretty easily adaptable for these other industries as well, and so I'm hoping that we can capture and attract awesome developers and awesome users to basically build out those parts of the ecosystem as well.
The Defiant is a daily newsletter focusing on decentralized finance, a new financial system that’s being built on top of open blockchains. The space is evolving at breakneck speed and revolutionizing tech and money.
About the founder and editor: Camila Russo is the author of The Infinite Machine, the first book on the history of Ethereum, and was previously a Bloomberg News markets reporter based in New York, Madrid and Buenos Aires. She has extensively covered crypto and finance, and now is diving into DeFi, the intersection of the two.